Team New Zealand has hit back at concerns over the financial management and safety procedures around next year's America's Cup defence.
The syndicate and America's Cup Events (ACE) said a letter leaked to the Herald did not include a reply the organisations made last week.
The Herald revealed today that concerns over the financial management of the America's Cup were so serious that the Crown made a thinly-veiled threat to withhold the next tranche of taxpayer funding, according to a confidential letter.
Prime Minister Jacinda Ardern said the Ministry of Business, Innovation and Employment was looking into the claims of misspent money, but she deferred to Economic Development Minister Phil Twyford on the matter of whether any further public funding would be frozen until the outcome of the MBIE review.
In a statement - accompanied by a letter responding to MBIE and Auckland Council - Team NZ said MBIE and the council should be satisfied that the syndicate and ACE were not in breach of their obligations of the hosting agreement for the event.
"ETNZ and ACE categorically deny any wrongdoing and consider that they have already addressed the concerns of MBIE and [Auckland] Council, and their advisor Beattie Varley," Team NZ said this afternoon.
The response confirms that $3 million was paid to Team NZ - but the team did not consider this a loan, but payment for work that the team had done.
"It is a valid charge in relation to the management and delivery of the Events for the significant time spent by ETNZ team members for Event related matters," they wrote.
"When analysed, that time is in fact in excess of $6 million but has not been fully charged (and will not be fully charged) in order not to have a detrimental effect on ACE's budget. Further details of the time spent by ETNZ team members on Event related matters will be provided in due course.
"It is acknowledged that the $3,000,000 was assessed for work after the work was completed. But it had never been classified as a "loan", and we would appreciate being provided with any documentation you hold from the Whistleblower or the [informants] that categorises it as a loan. The money in question was actually paid directly by MBIE to ETNZ, and never even flowed through ACE's bank account.
"We believe that the reference to a 'loan' that has been raised is a reference to a totally unrelated discussion between [name redacted] and [name redacted], where the prospect of an inter-company loan from ACE to ETNZ to alleviate cashflow was raised by [name redacted].
"However, that proposal never came to anything, as it was not needed and was never implemented. If you have documentation or evidence to the contrary, we would be grateful if you would provide that to us."
The response also confirms the team was scammed and paid money into an Hungarian bank account.
The scam was reported to police.
"The email scam which resulted in the payment to a fraudulent Hungarian bank account was immediately disclosed by [name redacted] to MBIE ([name redacted]) after its discovery and an assurance was given that ACE still had sufficient funds for the delivery of the Events, and that it would not be seeking any further financial assistance from the Hosts.
"The scammed funds simply needed to be replaced by other revenue at ACE.
"The fraud/theft was reported to the NZ Police who alerted the relevant international authorities with all appropriate steps being instigated through Kiwibank and Bell Gully, solicitors, to attempt to recover the funds."
On concerns over record-keeping and providing information, Team NZ and ACE said a wealth of information had been provided to Beattie Varley, a firm of forensic accountants examining the Cup's funding.
"Much of the information now being requested involves confidential contracts and material which should be reviewed on site at our base."
Team NZ's letter, released today, addressed concerns from MBIE and the council about some of their personnel not co-operating with Beattie Varley.
"A wealth of information has been provided to Beattie Varley, at times under difficult circumstances due to the COVID 19 lockdown," it says.
"Much of the information now being requested involves confidential contracts and material which should be reviewed on site at our base."
The letter said they had "fully disclosed the nature of our operation and how we operate dynamically to Beattie Varley.
"We are not like a standard corporate, and the nature of our operations means that we need at times to remain flexible and to adjust quickly to sometimes quickly changing circumstances.
"We do not accept that the matters raised in the Beattie Varley Report are individually or cumulatively material adverse events in relation to the management and delivery of the Events.
"However, as advised, we remain willing to continue to cooperate with Beattie Varley and to answer their queries, and to work with MBIE to reach a solution to deal with the concerns expressed (including through this letter)."
The response said Team NZ had concerns about the financial dashboard, saying it could not be reconciled with the general ledger, and as a result they had brought in expertise to help.
"Due to a lack of confidence by the board and the CEO regarding the financial management and budgeting of the [informants], and after board members raising concerns with the quality and accuracy of financial information they were producing, in March this year the CEO of ACE directed that the ETNZ CFO, Shane McAlister (who joined ETNZ in September 2019), become involved in the financials of ACE and he was tasked with rebuilding the ACE financial budget.
"It was during this process, when he was asked to send the Event Dashboard to the MBIE auditors, that he discovered it could not be reconciled with ACE's General Ledger. It became obvious to him that the dashboard had been prepared by the [informants] with hard coding and no reconciliations, and Mr McAlister identified the inaccuracies in the previous Event Investment Dashboards and directed that the dashboard be corrected.
"He is satisfied that the dashboard for 31 May 2020 now accurately reconciles with ACE's financial records."
On the safety concerns raised in the letter by the MBIE and Auckland Council, ACE said:
"ACE has for some time had safety concerns about the inappropriate expectations for volunteer marshals to be expected to exercise enforcement duties on the water.
"In our view, and based on the extensive experience available to us (including the Regatta Director Iain Murray), merely having an increased number of boats staffed by volunteers (without legal enforcement authority) to a number in excess of the established international norm... does not alleviate this issue."
The Herald reported that Auckland Council and the Ministry of Business, Innovation and Employment say a financial dashboard that was presented in May - showing public spend - is "materially different" from that presented earlier in the year.
"In particular, the total actual event investment spend for previous months is materially different from what has been reported by ACE [America's Cup Events Ltd] as at 31 January 2020 and as at 29 February 2020 and all other event investment dashboards," says the letter from the CEOs of Auckland Council and MBIE to Team NZ and ACE.
The council and the Government have poured $250m into hosting the 36th America's Cup - and the council is planning to spend a further $20m to support the regatta and other events next year.
The council's share of the $250m is $113m.
The Government is spending $136.5m, including a host fee of $40m.
On top of this, the council has been spending about $100m to spruce up the waterfront in time for the Cup and other events in 2021.
The council and MBIE delivered an escalation notice - the confidential letter - on June 22, saying their concerns over health and safety of the on-water plan, reporting of the public funding spend, a breach of warranty and a breach of commitment were "individually and cumulatively material adverse events" in relation to the management of the America's Cup challenger and final series, to be held in Auckland next year.
The council and MBIE were also concerned there has been no event cancellation insurance taken out.
"As such... MBIE is not obliged to pay the next payment instalment."
In addition, documentation in relation to a funding milestone for June 30 was "not satisfactory".
The parties met on Monday this week, but the outcome of that meeting has not been revealed.
Team NZ boss Grant Dalton said today no public money had been misused.
Dalton told Newstalk ZB's Mike Hosking that he had seen the MBIE-council letter - the allegations were treated seriously, and he looked "forward to knocking them off one by one... a lot of them have already [been] knocked off".
Dalton said today that the organisation had been defrauded by scammers, with money being paid into a Hungarian bank account. He denied there had been any $3 million loan to Team NZ.
The confidential June 22 letter written by MBIE and the Auckland Council - and obtained by the Herald - reveals allegations around the handling of public money; the operation of the Cup itself and worries about public safety; and it lifts the lid on officials' concerns that the event organisers, America's Cup Events (ACE) and Team NZ, are in breach of obligations.
Dalton said no public money had been misused.
"There are some pretty good, inflammatory and sensational words in there, like fraud and Hungarian bank accounts - your eye just goes straight to those. Let's talk about that one.
"One of the informants was in charge of the accounts of the event. Some time ago I approved an invoice for a large contractor in Europe... and, no, I did not check the noughts and the ones on the bank account. It was the correct invoice as per the contract and the money was sent to Hungary.
"Is that fraud? Yes, it is insomuch we were basically defrauded. Is it fraud in the sense it's portrayed in the paper this morning? Absolutely not. More importantly, instantly we rang MBIE, told them what had happened, told them it wasn't government money because it wasn't, and we got straight into the fraud police... and we've recovered some of the money.
"There was fraud insomuch that we were defrauded to an incorrect bank account. We haven't got all of the money back, we have got some of the money back."
The letter also raises operational and safety concerns around the Cup, including police and harbourmaster concerns around the use of on-water marshals.
It says a suggestion by ACE to renegotiate the on-water crowd management plan to provide for "fewer marshal boats is not acceptable and if this is undertaken, the Harbourmaster might not issue the relevant permits for the Events".
"The delivery of a safe and successful event requires proper management of all on-water aspects and a revised plan with fewer marshal boats and stake boats would mean that there is a serious risk to the health and safety of members of the public."
Dalton told Newstalk ZB's Mike Hosking today that these issues were "possibly the most important thing".
He got involved in the on-water issues a couple of months ago. "It didn't feel right. What I found was 45 chase boats - 45. Some of which would be anchored, a lot which would be moving around in the crowd, manned by well-meaning volunteers with clipboards and fluoro-jackets. I think that's a hazard in itself.
"We suggested back that it should be significantly less volunteer chase-boat numbers... that it should be boosted by people in authority - police - on the water. We saw that as a better combination.
"Do we have a dispute on that? We absolutely do. This is not our first rodeo. I watched the restart of the Volvo Race here a couple of years ago. It was an absolute shambles. That was a health and safety issue. We treat health and safety very, very importantly."
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